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Economic policy must be driven by information on the present, not the past

08 June 2017

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We live in an organic economy where businesses expand and contract at an ever-increasing rate. Companies like Deliveroo are growing rapidly in the matter two or three years, while other businesses like the 97-year-old BHS go into liquidation.

The average lifespan of a company listed in the S&P 500 has decreased by more than 50 years in the last century, from 67 years in the 1920s to just 15 years today. Now that is projected to drop even further by 60% in the next decade.

Volatility is the new norm in our economy. Yet very little is known about the 99 per cent of businesses that contribute 50 per cent of our GDP, because they’re private - and the information on them is not easily accessible or up to date.

We often assume that the “people in charge” have some greater perspective on the economy and have access to much better information than the public does, but sadly this is not often the case. Much of the data that these politicians use can be 18 months old.
If you factor in the time that it takes to draft legislation and enact it, much of economic policy for small to medium sized businesses – SMEs – are based off what the economy looked like 5 years ago, or anecdotal evidence or political ideology.

Even banks who have access to the transactional histories of their customers, struggle to have the comprehensive, real time information needed to truly understand the full context of these businesses.

The problem of lack of information on businesses is not going to self-correct, it is getting worse, and we need to fix it. The number of public companies in existence has contracted by 50% over the last 20 years. More companies are staying private for longer
as well.

I reject the notion that economies are naturally efficient and linear and can, therefore, be governed by ideology and theory. Economies don’t fit into neat narratives and slogans. Rather, we embrace the reality that economies are complex ecosystems that
can only be fully understood and managed with real-time comprehensive information on the businesses that power them.

The result of a lack of information is fear and uncertainty. Politicians build walls and enact isolationist policies, banks limit lending and businesses take less risks. The risks they do take are with known quantities – often the largest businesses. This
creates a tremendously polarised economy and society.

Policies are based around what can be articulated and proven. If we want to make a more inclusive economy and society we need to start by gathering the data on the unknown, the private businesses, the bulk of the economy. What is not quantified is never
valued.

But how can we blame these politicians for making decisions that favour larger businesses when nearly all of them don’t have access to up to date information on the rest of the economy?

Think of how much money is wasted on activities that are anecdotally impressive but statistically ineffective. If you think that this is exclusive to politicians at a national level, politicians at a local level have an even worse time.

You wouldn’t run your business with such blinders, why should we run our economy this way. We must equip our politicians and banks with better tools to understand this nuanced and ever-changing environment.